hartleys upgrade to 5.4c

Points:


"A combined initial flow rate could be known by the end of next week"

"Ely commented that the frac job had been completed ?as good as any he has seen"

"We rate TSV as a Buy with an increased price
target of 5.4cps (prev 4.9cps)"

"How to Play it? Take a Position Now
Whilst there is still some risk related to flow rates from Warro-4, we are confident
that a positive outcome will be achieved, which should result in a significant rerating"

That last one is a big call to make!

Full Report:

TRANSERV ENERGY LTD
Frac Job Completed as per Design
Transerv Energy Limited (?Transerv?, ?TSV?, ?Company?) recently completed the
two, planned fracture stimulation stages at its Warro-4 well, located 200km north
of Perth. Both stages were executed by Halliburton at the design rate and
volume, with several parameters being achieved above expectation. Flow testing
of the well is scheduled to commence within days.
TSV has a 35% interest (free carried for an additional $50m) and is operator of
the Warro field (through Latent Petroleum), which has a P50 recoverable
resource estimate of >1 trillion cubic feet of gas.
Frac Debrief Insights ? Cautiously Optimistic
We were privileged to recently attend part of the frac debrief at the offices of
Labrador Petro-Management. The meeting was chaired by fracture stimulation
specialist, John Ely, who designed the frac, and Halliburton, who executed it. Ely
has many years experience fraccing the analogue Granite Wash play for
Newfield in the USA. The design for the Warro frac was virtually identical to those
being successfully completed in the Granite Wash where initial production rates,
from multi stage horizontal wells, can exceed 20 million cubic feet of gas per day.
Ely commented that the frac job had been completed ?as good as any he has
seen?. We do not expect an optimal frac at this early stage but insight into
possible flow rates is likely to be positive.
Treating pressure was lower than expected and excellent frac penetration, fluid
volume and proppant volume was achieved. Significantly, the deeper zone (zone
4), which had screen-out issues in Warro-3, was executed without flaw. Zone 6,
which produced 60% of the 5 million cubic feet of gas per day achieved in the
Warro-3 well, was executed similarly.
The Company has expectations for initial flow rates of 1 million cubic feet of gas
per day from each horizon; however, we are optimistic that this may be
exceeded. A combined initial flow rate could be known by the end of next week.
Funding Gap Filled via Debt
The Company has also announced that it has secured funding to close the recent
acquisition of its Carnaby Project assets in British Columbia, Canada. The
acquisition called for a final payment of CAD$4.3m by the end of August. The
Company has signed a term sheet for A$7m of unsecured debt with Apollo Asia
Opportunities Fund and Argonaut Equity Partners. The terms are yet to be
disclosed but have been described as ?standard?, with an additional 70m options
(strike 4cps, expiry 30/12/2014) also available to the lenders.
Duvernay Attracting Interest ? Macquarie Appointed for Sale
The Company has reported that it has appointed Macquarie Capital to act as
advisor for the sale or farmout of all or a portion of its Duvernay Shale and Rock
Creek mineral rights. The Company has also acquired an additional ~2,000 net
acres in the Duvernay and Rock Creek, bringing its total net acres in each play to
~28,000 (i.e. ~56,000 combined). We recently estimated, based on transactional
look through value, that this could be worth US$73m (TSV share).
How to Play it? Take a Position Now
Whilst there is still some risk related to flow rates from Warro-4, we are confident
that a positive outcome will be achieved, which should result in a significant rerating.
Sale / farmout of the Duvernay / Rock Creek may also provide a catalyst
leading in to the end of the year. We rate TSV as a Buy with an increased price
target of 5.4cps (prev 4.9cps).